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Forex Market Update: U.S. Dollar Falls Sharply against Yen, Euro also Edges up against Dollar

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The U.S. dollar plunged against the Japanese currency on Tuesday after the Bank of Japan (BOJ) left its monetary policy unchanged. While analysts were not surprised with the bank’s decision of not expanding its economic stimulating measures, market participants were disappointed as it did not offer any measure to curb extensive volatility in Japanese bond markets.

Earlier during Asian trading hours the yen climbed more than 2% against the USD to trade at yen96.48. Market participants were hoping that the BOJ would extend the maximum period of its fixed-rate loans to two years from current one year duration.

After the interest rate policy announcement, investors started unwinding hefty positions they had placed against the yen.

Still, analysts are expecting that the yen would remain broadly lower in coming months as the U.S. dollar is becoming stronger amid rising expectations that the Federal Reserve could start tapering its multi-billion bond purchase program in next few FOMCs.

Commenting over Japanese Prime Minister Shinzo Abe’s economic stimulating polices and impact on the yen, Lee Hardman, currency economist at BTMU, said, “We are in a period of correction for the Abenomics trade of higher equities and a weaker yen … We view this as a temporary correction and would look for levels around 95 to buy dollar/yen,” according to Reuters.

Meanwhile the euro also edged up against the U.S. dollar. The European Central Bank (ECB) President Mario Draghi said on Monday that the bank will not resort to stoking up the inflation rate in order to end the euro zone crisis. Instead, he said, the bank would purchase bonds under certain circumstances. The ECB also refrained from providing more economic stimulating measures when it held its interest rate policy meeting, last week.

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edliston
Post Written By: Ed Liston
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.

Ed Liston

Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing.

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